2009 F-1 Class Questions Preview

2009 F-1 Class Questions Preview - Financial Accounting &...

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Financial Accounting & Reporting 1 Class Questions 1 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. 1. CPA-00005 What is the underlying concept governing the generally accepted accounting principles pertaining to recording gain contingencies? a. Conservatism. b. Relevance. c. Consistency. d. Reliability. CPA-00005 Explanation Choice "a" is correct. Gain contingencies should not be recognized prior to realization as a prudent reaction to the uncertainty surrounding the realization of the gain as reflected in the convention of conservatism. SFAS 5 para. 17, SFAC 2 Glossary and para. 95 Choice "b" is incorrect. Overall the qualities of information apply equally to all accounting information, not just gain contingencies. Relevance is a primary quality of information, which dictates that any information relative to the entity should be reported if it might be useful to the third party user (that is the information is timely with predictive and feedback value). SFAC 2 para. 32 Choice "c" is incorrect. Overall the qualities of information apply equally to all accounting information, not just gain contingencies. This includes consistency, an element of comparability, the secondary quality of information, which specifies that, when a choice of accounting principles has been made, the same principle be used in accounting for subsequent years' transactions. SFAC 2 para. 32 Choice "d" is incorrect. Overall the qualities of information apply equally to all accounting information, not just gain contingencies. This includes reliability, a primary quality, which requires that information, be verifiable, neutral, and representationally faithful. SFAC 2 para. 32 2. CPA-00010 According to Statements of Financial Accounting Concepts, neutrality is an ingredient of: Reliability Relevance a. Yes Yes b. Yes No c. No Yes d. No No CPA-00010 Explanation Choice "b" is correct. The characteristics of reliability are verifiability, representational faithfulness, and neutrality. The characteristics of relevance are predictive value, feedback value, and timeliness. SFAC 2 para. 62
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Financial Accounting & Reporting 1 Class Questions 2 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. 3. CPA-00020 On December 31, 1992, Brooks Co. decided to end operations and dispose of its assets within three months. At December 31, 1992, the net realizable value of the equipment was below historical cost. What is the appropriate measurement basis for equipment included in Brooks' December 31, 1992, balance sheet? a. Historical cost. b. Current reproduction cost. c. Net realizable value. d. Current replacement cost. CPA-00020 Explanation Choice "c" is correct. Net realizable value is the appropriate measurement basis for equipment included in Brooks' Dec. 31, 1992 balance sheet, because of the decision to end operations and quickly (3 months) dispose of its assets. Choice "a" is incorrect.
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This note was uploaded on 02/19/2011 for the course BMGT 360 taught by Professor Spina during the Spring '07 term at Maryland.

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2009 F-1 Class Questions Preview - Financial Accounting &...

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